Enter and update tax exemptions on Receivables transactions according to your requirements. A tax exemption applies a discount or a replacement percentage that reduces the tax on a transaction.

Tax exemptions apply to a specific customer or to a combination of customer and specific product. You must complete the necessary setups for all of the tax exemptions that you need for each customer and customer site involved in transactions. These setups include:

• Set the eBTax: Allow Override of Customer Exemptions profile option to display the Tax Handling field.

• Set up exemption reason lookup codes.

• Enable the Allow Tax Exemptions option at all the applicable levels in the regime-to rate flow. E-Business Tax only considers tax exemptions for the tax regimes, taxes, tax statuses, and tax rates that have this option enabled.

• Set up customer and customer site tax exemptions for the tax regimes, taxes, tax statuses, tax rates, tax jurisdictions, and products that you need.

See: Setting Up Tax Exemptions for more information.

Tax Exemption Status and Tax Handling

During the life of a tax exemption, the exemption status can often change. Because the status of a tax exemption affects its applicability on the transaction line, you must update the tax exemption record each time the status changes.

These rules apply to the status of a tax exemption:

1. Tax exemptions with a status of Primary apply to all transactions of the customer or customer site.

2. Tax exemptions with a status of Manual apply to specific transactions only of the customer or customer site.

3. E-Business Tax considers tax exemptions with a status of Manual or Unapproved during tax calculation provided the exempt reason and certificate number entered on the transaction line match the exemption record values.

4. Tax exemptions with a status of Discontinued or Rejected are not considered during tax calculation.

5. If a tax exemption with a status of Primary, Manual, or Unapproved has an end date, E-Business Tax considers these tax exemptions if the transaction date is within the effective date range of the exemption.

You use the Tax Handling field to select the applicable tax exemption value for the transaction line. E-Business Tax processes tax exemptions in different ways depending upon the value you choose:

• Require - The customer is required to pay the tax. Tax exemptions do not apply to this transaction line, even if defined.

• Exempt - Enter the exemption certificate number and the customer exemption reason. E-Business Tax processes the tax exemption in this way:

  1. Consider tax exemptions with a status of Primary, Manual or Unapproved.

  2. Verify that the transaction date is within the tax exemption effective date range.

  3. Verify that the transaction exemption reason and exemption certificate number match the tax exemption reason and certificate number. If you do not enter a certificate number, E-Business Tax still looks for a matching tax exemption.

  4. If E-Business Tax does not find an exemption matching these conditions, it creates an exemption with the status Unapproved and a 100% discount.

• Standard - This tax handling is for exemptions of the Primary status only. You do not have to enter the exemption certificate number or customer exemption reason.

  E-Business Tax looks for a tax exemption with the Primary status and an effective date range that includes the transaction date. If more than one tax exemption applies, E-Business Tax uses the most specific tax exemption, in this order:

  1. Customer and product tax exemption for tax rate and tax jurisdiction.

  2. Customer and product tax exemption for tax rate.

  3. Customer and product tax exemption for tax status and tax jurisdiction.

  4. Customer and product tax exemption for tax status.

  5. Customer and product tax exemption for tax.

  6. Customer only tax exemption for tax rate and tax jurisdiction.

  7. Customer only tax exemption for tax rate.

  8. Customer only tax exemption for tax status and tax jurisdiction.

  9. Customer only tax exemption for tax status.

  10. Customer only tax exemption for tax.

Calculating the Tax Rate

After applying the tax exemption to the transaction line, E-Business Tax calculates the tax rate in this way:

• If the exemption type is a discount/surcharge, then:

  Tax Rate = Tax Rate * Discount/Surcharge percentage.

• If the exemption type is a special rate, then:

  Tax Rate = Special Rate.

If both a tax exemption and tax exception apply to the same transaction line, E-Business Tax calculates the tax rate in this way:

• If the exemption type is a special rate, then E-Business Tax only applies the tax exemption special rate:

  Tax Rate = Special Rate.

• If the exemption type is a discount/surcharge and the exception type is a special rate, then:

  Tax Rate = Tax Exception Special Rate * Tax Exemption Discount/Surcharge percentage.

• If both the exemption type and exception type are discount/surcharge, then:

  Tax Rate = Tax Rate derived from tax rules * Tax Exception Discount/Surcharge percentage * Tax Exemption Discount/Surcharge percentage.